Let’s Talk about Value
You may hear about add value, value added, value chain etc. What is value? Value is defined as : Benefit divided by Price, while there are two kinds of Benefit :
1. Functional, alias Value in use.
This is the value given by a product which actually fulfill the basic requirement of the buyer, such as common commodity like rice (as long as can fill my stomach), sugar (as long as it is sweet). In this context price is the only element that plays a role, which means the lower the price, the more and easier you can sell.
2. Physiological value or Perceived value
This is intangible and it is human nature to get some thing “good” after the basic needs have been fulfilled (basic food, basic housing, basic wear), everything above the basic needs are classified as WANT, the higher the standard of living usually the more people WANT.
Let’s take an example of ink industry, usually they stuck by an old thinking that the only value on ink is on its functional i.e as long as the ink is able to stick on substrate and given the properties as an ink should be, they treat it just like selling commodity. That is why the ink’s price becomes lower and lower and at the same time the margin is getting smaller and smaller.
Actually they are in an intangible value industry, think about it, why should their customer print a packaging, if consumer buy only what they need and then throw away the packaging. The fact shows that consumers are willing to pay more on the same thing with a nice packaging.
What happen? When people buy something, most of the time it is not their ratio who makes the decision, it is their emotion. That’s why if you control the emotional side of your customers/consumers you can increase the Perceived Value of your product.
Value in flow
Most of the industry started with a phase where the value is flowing in, and it is mostly functional value. e.g. Computer at its early stage (if you open up a computer and weight it, the raw material cost/RMC is nothing), people pay for the value added (turning all the plastic, wire, silicon, glass into a useful machine). Here people still respect the brand name due to its product quality (functional).
Value out flow
After the value in flow phase (some of the product has a long cycle, some is very short, and the trend is shorter and shorter), the industrywill face the phase of value out flow. What ever value you put in, people take it for granted (price of computer drop and keep on dropping while the functional value given is higher and higher). If there is no innovation to be brought to the industry, out from the same pattern, the industry will finally compete on cost reduction and finally end up with consolidation alias the strong will swallow the weak.
One important thing which most of people forget is to give “more and more” to the customer but charge less and less. Because every body agree and every management course/books preach that: We Have to Serve the Customer Well, Customer is the KING, We Have to Delight the Customer etc, etc.
What happen? Actually you are draining your value of your industry. Finally you have to realize that doing business is not only to satisfy your customer, it also has to satisfy your shareholder and employee, which means: If your Value Added is not appreciated in the process (means get more margin), you have better to take away the benefits of the product and cut cost.
So what does that means? At this value out flow stage, it is the time for Real Marketing Skill to play on the intangible side or Perceived Value.
It is time for you to win your customer heart share, mind share in the market share.
It is time for you to select the segmentation (narrow down your focus), position your product and differentiation it.
All of these do not mean anything without an effective way to convey the message to the customers (right communication skill).
– Coach Cahyadi –
ActionCOACH South Jakarta business coaches guide businesses in selecting and implementing effective and cost-efficient marketing strategies to boost results with a proven 17-week guarantee. For more information on business coaching, visit www.actioncoachsouthjakarta.com or call 021 2567 5775 .
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- Perception : You Are Not what You Are, but You Are what Others Perceive
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